Amidst heightened geopolitical tensions and escalating global inflation concerns, the Federal Reserve has publicly stated that its current monetary policy is well-suited to the current economic climate, and that a moderate tightening could effectively offset external price shocks. At the same time, the Fed has not closed the door to further interest rate hikes, and if inflationary pressures spread further, there is still a possibility of further tightening.

The previously widespread expectation of interest rate cuts has cooled across the board, and the consensus is that interest rates will remain high for a long time . This shift in policy direction has also had a significant impact on the global bond market and precious metals market.

Top officials have publicly stated that current policies are suitable for the current economic environment.

On Tuesday evening (May 19) at 7 p.m. local time, Philadelphia Federal Reserve Bank President Anna Paulson attended the Atlanta Fed industry conference held in Amelia Island, Florida, and shared her views. She stated that while geopolitical conflicts and inflation risks continue to rise, the Fed's current monetary policy stance remains aligned with the actual state of the market.

Paulson stated that the Federal Reserve's current moderately tightening monetary policy stance effectively offsets the price pressures from tariff adjustments and the turmoil in the Middle East, firmly stabilizing domestic inflation. Considering various external shocks and internal economic data, the current policy pace does not require significant adjustments and remains within a reasonable range.

Market expectations reversed, and the fervor for interest rate cuts completely subsided.

At the beginning of this year, the market was confident that after inflation steadily declined, the Federal Reserve would begin a rate-cutting cycle, and expectations of easing dominated market trends. However, as the situation in West Asia continued to escalate, shipping through the Strait of Hormuz was disrupted, the global energy and commodity supply structure tightened, and upward pressure on prices rose again, leading investors to revise their assessments of the US interest rate trend.

Paulson stated that the recent market fluctuations driven by economic data closely align with her assessment of macroeconomic trends and potential policy risks. She acknowledges the current rational shift in the market, believing that the expectation of sustained interest rate stability or even further rate hikes is a reasonable judgment based on the current economic climate.

The policy has left room for interest rate hikes; the door is not completely closed.

While acknowledging the effectiveness of existing policies, the Fed official did not blindly favor easing, but rather explicitly reserved the possibility of further tightening. She stated that market participants considering both stable interest rates and further rate hikes would contribute to a more stable and healthy financial market.

These remarks formally established the mainstream attitude within the Federal Reserve, and the market completely abandoned previous optimistic speculations about significant interest rate cuts, gradually accepting a new market structure where high interest rates will persist for a long time. Industry experts generally predict that the Federal Open Market Committee (FOMC) meeting in June will maintain the benchmark interest rate range at 3.5% to 3.75% . This meeting, also the first formal policy meeting chaired by newly appointed Federal Reserve Chairman Kevin Warsh after his inauguration, is attracting significant global market attention.

The economic fundamentals are sound and there is no immediate risk of runaway inflation.

Despite the escalating external factors driving price increases, Anna Paulson remains relatively optimistic. She stated that while the risk of short-term inflation has increased, long-term market inflation expectations remain stable, and the overall US economic growth rate is hovering near its potential range. Therefore, a widespread and uncontrolled price surge is unlikely in the near term, and the overall economic resilience remains strong.

Influenced by policy trends, the global bond market continues to face pressure and adjustments, with US Treasury yields rising one after another. The yield on 30-year US Treasury bonds has climbed to the level before the 2007 financial crisis, and the pressure for adjustment in the bond market continues to be released.

Gold prices weakened as a result of the coordinated adjustment across major asset classes.

Amid strong expectations of continued high interest rates, market investment logic has shifted, leading to a significant correction in precious metal assets. Affected by rising US Treasury yields and inflation concerns stemming from geopolitical tensions, spot gold prices fell sharply by nearly 2% on Tuesday, currently stabilizing around $4469 per ounce. The previous upward momentum has temporarily stalled, and the market has entered a period of weak consolidation in the short term.

Summarize

Overall, the Federal Reserve's current policy focus remains on controlling inflation. Despite multiple negative external shocks, it has maintained its policy stance, neither hastily easing to stimulate the economy nor immediately tightening to suppress the market. As the trend of high interest rates becoming increasingly clear, global financial markets will readjust to the new monetary environment. Bond market adjustments, equity market valuation reshaping, and precious metal market volatility will all become the norm.

Subsequent price trends and changes in the geopolitical situation will be the core factors in determining whether the Federal Reserve will initiate a new round of interest rate hikes.